A local police official said the two men "admitted under torture from the crowd that they were organ traffickers," Radio France Internationale reported.
"The two Europeans were killed and burned on the beach," another police officer from the Nosy Be city of Hell-Ville said.
The French Consulate in Madagascar has advised French citizens to avoid the island's beaches, a tourist destination.
The violence began Wednesday following the disappearance of an 8-year-old boy. An angry crowd gathered outside the Hell-Ville police station because they thought a suspect in the child's disappearance was being held there. At least one person died and two others were injured in the confrontation.
On Thursday, the boy's body was found on a beach, with the tongue and penis missing, police said.
The crowd suspected the two French men of the boy's slaying and of attempted organ-trafficking, RFI said.
The BBC cited local media reports that the protesters found human organs in a refrigerator in the building where the two French men were staying.
Police said the mob was still looking for a third person, a doctor also suspected of being involved in organ-trafficking.